GPSolo Magazine - March 2004
Estate And Financial Planning
Crossing State Lines With Durable Powers
All 50 states and the District of Columbia have enacted durable power of attorney legislation; 48 have adopted the Uniform Durable Power of Attorney Act or substantially similar provisions. Despite initial national uniformity in durable powers legislation, a study last year revealed that consistency among states is rapidly eroding. Only 13 states remain “pure” Uniform Act states. Eighteen jurisdictions have retained the Uniform Act’s core sections but have added a few provisions to address specific topics, and 20 states have adopted numerous detailed provisions either instead of, or in addition to, the Uniform Act. With the increasing mobility of clients and their geographically diverse property holdings, material differences in state durable power of attorney laws could pose significant hazards for clients and their attorneys. Specifically, there is growing state divergence in the following areas: fiduciary standards of care and remedies for abuse; authority of a later-appointed fiduciary or guardian; activation of springing powers; authority to make gifts; multiple agents; and impact of divorce on a spouse-agent’s authority. This article provides a brief summary of the differences discovered in each of the foregoing areas and suggests drafting strategies for the lawyer with potentially mobile clients.
Fiduciary standards of care and remedies for abuse. Nineteen states expressly address fiduciary standards of care for agents, but the substance of the statutes varies considerably from minimal treatment that merely identifies the attorney-in-fact as a fiduciary to those requiring the same level of care as a trustee and specifying a list of duties. With respect to remedies for breach of the agent’s duties, the statutory provisions range from silence to penalties, such as treble damages and attorney fees.
Authority of a later-appointed fiduciary or guardian. The relative authority of an attorney-in-fact versus that of a later court-appointed fiduciary or guardian varies significantly across state lines. Twenty-three states follow the Uniform Act approach, which provides that once there is a court-appointed guardian or fiduciary, the attorney-in-fact is accountable to both the fiduciary and the principal. Seventeen jurisdictions provide that the attorney-in-fact is accountable only to the fiduciary. Five terminate the attorney-in-fact’s authority upon court appointment of a fiduciary. Four take the opposite approach, providing that the attorney-in-fact’s authority actually supersedes that of a later-appointed fiduciary.
Activation of springing powers. Nearly all states provide for springing powers. In fact, only four states have no express provision in their statutes for springing powers. What differs among the states is how the trigger is to be specified and whether an affidavit or written declaration must be provided to confirm that the power has “sprung.” Some require a physician’s affidavit of the principal’s incapacity; others permit any designee of the principal, including the agent, to make the determination. Still others provide a default process for determination of incapacity if the principal has not specified a designee for that purpose in the power of attorney.
Authority to make gifts. One of the most controversial powers that may be conveyed by a durable power of attorney is the authority to make gifts. The Uniform Act does not specifically address the authority of an agent to make gifts, nor do the majority of state statutes. Only 20 jurisdictions include express reference to gift-making authority, and all but two of these jurisdictions provide for statutory default limitations on the authority. In general, states are divided into two divergent groups—one that requires the durable power of attorney to include specific authorization of gift making, and the other that implies the authority to make gifts if the agent is given broad authority without specific limitations.
Multiple agents. Although appointment of multiple agents may be common, the default rules governing the authority of multiple agents are anything but common. Sixteen jurisdictions specifically address the authority of multiple agents. Two prohibit co-agents; one requires that multiple agents act jointly; nine provide that the instrument can specify joint or several authority for multiple agents but that in the absence of specification the multiple agents must act jointly; three state that multiple agents may act independently in the absence of specification to the contrary; and one does not provide a default rule but states that the instrument can specify joint or several authority.
Impact of divorce on a spouse-agent’s authority. Among the 12 states that specifically address the impact of divorce on the authority of a spouse-agent, all 12 provide for revocation of the spouse-agent’s authority upon a decree of divorce. Four, however, actually provide for revocation upon the filing of the petition.
Planning for the mobile client. Obviously, the best approach for mobile clients is to draft a separate power-of-attorney document for each state in which the principal anticipates at least temporary residence or the location of property. However, the unpredictability of sudden incapacity and the consequences that follow, such as relocation to receive long-term care, may make planning with multiple documents impractical. Given the unanticipated variables that accompany incapacitation and the reluctance of clients to plan for such eventualities, lawyers may want to consider several guidelines when drafting durable powers for the potentially mobile client.
Draft with specificity—do not rely on default provisions. Although specifications with respect to agent authority drafted in one state will not be effective to enlarge upon mandatory statutory restrictions in another, such specificity will overcome differences in default provisions that exist only to supplant what is not covered by express language. While it is unlikely that another state’s default provisions could legally expand on the authority granted by the principal in her original state, it is likely that default provisions could constrain such authority. A typical portability provision provides: “A power of attorney will be valid in this State if validly executed under the laws of another state, but shall not be deemed valid to authorize any actions that are in contravention of the laws of this State.”
State clear triggers for springing powers. The use of springing powers, although disfavored by some lawyers, is widespread. Given the current differences that exist in state default provisions for the activation of springing powers, lawyers should recommend that the power of attorney contain clear triggers. Attention must be paid both to who will make the determination of incapacitation and upon what basis. Such specificity not only will overcome non-mandatory default provisions in another state but also will help to provide assurance to third parties who are sometimes skeptical about accepting an agent’s authority under a springing power.
Anticipate challenges to agent authority. Challenges typically come from two sources—third parties who must transact with the agent and other want-to-be surrogates for the incapacitated principal. Drafting with greater specificity concerning potentially controversial powers is perhaps the only means to enhance acceptance by third parties short of statutory consequences such as sanctions. If challenge to the agent’s authority is likely, the lawyer may also want to consider replacing default provisions regarding fiduciary duties with express instructions concerning the agent’s expected standard of care. When the typical default provision might require a “trustee” type level of due care, the principal may want to reduce the standard to “good faith” to discourage suits by disgruntled family members. Although this reduced standard may not be controlling in a jurisdiction that mandates a higher level, it may still serve as evidence of the principal’s intentions for his or her choice of agent.
Linda S. Whitton is a professor of law at Valparaiso University School of Law in Valparaiso, Indiana.
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